HEAVENLY HOMES (P) LTD vs. DEPUTY COMMISSIONER OF INCOME TAX,

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ITA/109/2016HC KeralaKLHC01026908201629 September 2016Author: HONOURABLE MRS. JUSTICE ANU SIVARAMAN,HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN5 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose for consideration from the order of the Income Tax Appellate Tribunal. The Court found no reason to interfere with the Tribunal's decision, which had upheld the addition made by the Assessing Officer and confirmed by the CIT(Appeals). The reasoning was based on the concurrent findings of the lower authorities that the assessee had failed to substantiate its low profit margin with adequate material. The CIT(Appeals) had specifically noted the assessee's inability to produce evidence demonstrating the reasonableness of its gross profit compared to other businesses in the same line or its own historical and subsequent performance. Consequently, the High Court concluded that the impugned order of the Tribunal did not merit interference under Section 260A of the Act. The appeal was accordingly dismissed.

What were the facts?

The assessee, Heavenly Homes (P) Ltd., engaged in real estate development and construction, filed its return for Assessment Year 2007-08 declaring a business income of ₹33,26,933. The Assessing Officer (AO) initiated scrutiny under Section 143(2) and made an addition of ₹33,10,533, citing low profits. The AO found the assessee's explanation for the low profit margin unacceptable, noting that profits in similar businesses were significantly higher. However, acknowledging the assessee's newness in the field and its quoting low rates to overcome competition, the AO pegged the net profit up to 2.5%. The Commissioner of Income Tax (Appeals) confirmed this addition, noting the assessee's failure to produce material substantiating its gross profit margin or comparing it to similar businesses or its own past and future performance.

What were the issues?

1. Whether a substantial question of law arises from the order of the Income Tax Appellate Tribunal (ITAT) in ITA No. 109/COCH/2015, dated 28.01.2016, concerning the addition made by the Assessing Officer and confirmed by the CIT(Appeals) on account of low profits in the business of real estate development and construction for Assessment Year 2007-08, thereby warranting interference under Section 260A of the Income Tax Act, 1961? Assessee's contention: The assessee, through its counsel, argued that the ITAT's decision did not give rise to a substantial question of law, implying that the factual findings and the consequent dismissal of the appeal were not legally flawed. Revenue's contention: The Revenue, represented by its standing counsel, did not explicitly record arguments in the judgment, but their position was implicitly supported by the concurrent findings of the lower authorities and the High Court's ultimate decision.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN THURSDAY, THE 29TH DAY OF SEPTEMBER 2016/7TH ASWINA, 1938 ITA.No. 109 of 2016 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 109/COCH/2015 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-01-2016 APPELLANT(S)/APPELLANT/ASSESSEE: ----------------------------- HEAVENLY HOMES (P) LTD 5D, 5TH FLOOR, OXFORD BUSINESS CENTRE, SREEKANDATH ROAD, RAVIPURAM, KOCHI- 682016. BY ADVS.SRI.K.N.SREEKUMARAN SMT.V.P.SEENA DEVI RESPONDENT(S)/RESPONDENT/REVENUE: -------------------------------- DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), ERNAKULAM- 682018. BY SRI.CHRISTOPHER ABRAHAM, SC, IT DEPT. SRI.KMV.PANDALAI THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29-09-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 109/2016 APPENDIX APPELLANT'S ANNEXURES ANNEXURE-A : COPY OF ASSESSMENT ORDER DATED 15.12.2009 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), ERNAKULAM. ANNEXURE-B : COPY OF ORDER DATED 19.12.2014 IN APPEAL NO.78/R-1/E/CIT(A)/14-15 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, ERNAKULAM. ANNEXURE-C : CERTIFIED COPY OF ORDER DATED 28.01.2016 IN ITA NO.109/COCH/2015 FOR 2007-08 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, ERNAKULAM. //TRUE COPY// PA TO JUDGE. jg-1/10 THOTTATHIL B.RADHAKRISHNAN & ANU SIVARAMAN, JJ. .................................................................... ITA No.109 of 2016 .................................................................... Dated this the 29th day of September, 2016.

J U D G M E N T Thottathil B.Radhakrishnan, J. 1.We have heard the learned counsel for the appellant/assessee in this income tax appeal filed under Section 260A of the Income Tax Act, 1961, for short, the 'Act', as also the learned standing counsel for the Revenue. 2.The appellant company is engaged in developing real estate, construction of flats and villas. It filed return for the relevant assessment year declaring a total business income of `33,26,933/-. That was taken up for scrutiny under Section 143(2) of the Act. The scrutiny assessment was completed by making an addition, apparently to the same extent, that is to say, `33,10,533/-. Such assessment on scrutiny was made on account of low profits. The assessing authority did not accept the explanation offered by the assessee for the low margin of profits.

-2- The details filed on record were also considered by the assessing authority, which proceeded to hold that the profits were quite inadequate in that line of business, particularly when, in many other cases the profit for the period relevant to the assessment year 2007-08 is far above the profit margin disclosed by the assessee. However, the assessing authority considered the fact that the assessee was new in the field of business and the low rate quoted by the assessee was to overcome compensation. Accordingly, the assessing authority pegged up the net profit up to 2.5% to make the level of profit margin to a reasonable extent. This is how the addition of `33,10,533/- was made. 3.The CIT (Appeals) confirmed the addition after adverting to and considering all relevant facts as disclosed in his order. It also noted that the assessee, on its part, did not produce any material/document to show that the gross profit disclosed by the assessee is reasonable, compared to the other assessees in the similar line of business. It is also noted by the CIT(Appeals) that -3- the assessee failed to substantiate that the book results of the current year is reasonable with regard to gross profit disclosed by the assessee in the earlier assessment years and the subsequent assessment years. In this factual scenario and having regard to the findings of the assessing authority and the CIT (Appeals), the Tribunal did not find any way to come to the aid of the assessee. We do not see any question of law arising for consideration on the decision rendered by the Tribunal. The impugned order of the Tribunal does not merit interference by this Court through an appeal under Section 260A of the Act. The appeal, therefore, fails. In the result, the income tax appeal is dismissed. (THOTTATHIL B.RADHAKRISHNAN, JUDGE) (ANU SIVARAMAN, JUDGE) jg-29/9

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